Can You Have Multiple 529 Plans for the Same Child?

Facebook icon Twitter icon Print icon Email icon
Joseph Hurley

By Joseph Hurley

April 26, 2022

A 529 plan is a popular way to save for college education. Each account offers unique financial and tax benefits, which begs the question: can you have multiple 529 plans for the same child? Would multiple 529 plans result in compounded benefits?

A beneficiary or student can have multiple 529 plan accounts; there’s no limit to how many. But what circumstances would warrant opening more than one 529 plan?

Today we’ll walk through some common reasons for opening multiple 529 plans, the pros and cons, and best practices to manage multiple accounts.

Benefits of multiple 529 plans for the same beneficiary

Here are a few reasons someone may benefit from having multiple 529 plans for the same beneficiary. 

  • Investment diversification
    Most 529 savings plans offer investment options that are well-diversified among different asset classes (stocks, bonds, money market, etc.). But perhaps your favorite 529 plan lacks some component that you would like to see in your portfolio, such as international equity, small cap value, or a principal-protected option. You may find that missing element in another state’s 529 plan and decide to put part of your 529 savings with that second plan.
  • Flexibility
    You’ll gain some income tax flexibility. By establishing multiple accounts, you’ll have the flexibility to pay college bills from the account with the most growth first, assuring maximum tax savings. If you ever have to take a taxable withdrawal, you’ll want to take it from the account with the least growth. Note: Your accounts must be in different states. All accounts you have in the same state for the same beneficiary are aggregated for tax purposes.
  • Fund manager variety
    Different 529 plans use different investment managers. If you are satisfied with the fund family in a single-manager plan, that’s fine. But if you want to diversify across different fund companies or managers, you will need to open multiple 529 accounts. Another option is to find a 529 plan that employs a ‘multi-manager’ investment platform.

Your state may require that you be “vested” to be eligible for a particular benefit. A few states offer scholarships, resident tuition rates, or other benefits. Maintaining even a small balance in your state’s 529 plan can ensure eligibility for any such benefit.

  • Tax benefits
    Your state may offer a state income tax deduction or tax credit capped at a certain amount. Your “favorite” 529 plan could be from a different state, yet you may still want to take advantage of the maximum tax deduction available. Allocating your contributions between both plans and states may maximize your deduction potential. 
    • Your state’s income tax break for contributions may be per beneficiary or account, instead of per taxpayer. If you have a 529 plan for each child, you may be able to claim a larger state income tax deduction or tax credit.
    • There may be a trade-off between a state income tax break on contributions to your state’s 529 plan and lower fees on an out-of-state 529 plan. When the child is young, low fees matter more. When the child enters high school, the state income tax deduction or tax credit will have a greater financial impact.
    • You’ve moved states, but can’t rollover your old 529 plan to the new state’s plan because your original state treats outbound rollovers to another state’s 529 plan as a non-qualified distribution. To avoid this disadvantage with rollovers, you may consider opening a new account entirely. 
  • Combining prepaid with savings.
    To lock in future tuition and fees, you may enroll in your state’s 529 prepaid tuition plan or the private-college Independent 529 Plan. Many state prepaid plans do not cover certain expenses like books, supplies, equipment, and room and board. You would have to open another account in a 529 savings plan for these additional expenses.
  • Investment protection.
    You want an FDIC-insured investment option, stable-value portfolio, or another specific type of conservative investment, but your state doesn’t offer them.
  • Bonus benefit: Avoiding aggregation.
    All 529 savings accounts in a state with the same account owner and beneficiary must be aggregated for purposes of the maximum contribution limitation. This is also a requirement to calculate earnings reported on Form 1099-Q when withdrawals are made. Accounts in different states are not aggregated, even when the account owner and beneficiary are the same. Suppose the maximum contribution limitation in a particular state poses a problem (which is hard to believe considering the high limits in most 529 savings plans). In that case, you could open accounts in multiple states to get around it. Avoiding aggregation in the earnings calculation theoretically gives you some additional tax-planning opportunities, but practically speaking is hardly ever worth the extra effort.

Pros and cons of multiple 529 plans

 

Pros

Cons

Tax benefits

More money is limited to educational expenses; penalties if you need to use the funds for other purposes

Investment diversification and fund manager variety

Additional plan fees

Better risk management

More monitoring and paperwork

Combined benefits with state 529 prepaid tuition plans

 

How to open more than one 529 plan

Opening multiple 529 plans is quite similar to just opening one, with a few extra details. Here’s how to open more than one 529 plan and manage them:

  1. Personal information: You’ll need a social security number and contact information for the account opener and beneficiary (child). If you or the beneficiary dies, you’ll want to prepare successor account information. 2.
  2. Account information: Use a detailed eye to fill in account and routing numbers for each 529 plan.
  3. Contributions: If you’re opening state-diverse accounts, remember that contribution limits vary by state. You can set up automatic deposits abiding by those limits for each account. Additionally, you may have to make a minimum first contribution. 
  4. Investment diversification: Decide how you want the funds invested. 
  5. Plan management: Set aside time every quarter to review the performance of each 529 plan. Look out for any penalties and contributions that surpass state limits. 

Bottom line? The process is simple; you just need to keep track of different contribution limits and rules for different plans. 

When should you consider multiple 529 accounts?

Can a child have more than one 529? Yes, but that doesn’t mean multiple 529 plans are mandatory. We recommend that you only open  multiple 529 accounts with a clear goal in mind (such as any of the above benefits), and if you’re prepared to manage additional paperwork and increased monitoring. 

A good place to start:

See the best 529 plans, personalized for you

A good place to start:

See the best 529 plans, personalized for you

×